Effective Supplier Relationship Management - nescon.org

1 Northeast Supply Chain ConferenceEffective Supplier Relationship ManagementJoseph C. BlackDirector, Corporate Administrative ServicesExpense Management Solutions, Outline Importance of Supplier Relationship Management The Required Foundation Supplier Segmentation Managing Supplier Relationships3 Importance of Supplier Relationship ManagementWhat is the goal of Supplier Relationship Management ?Achievement of desired results( best product and/or best service, delivered cost effectively)Ultimately- client satisfaction4 Importance of Supplier Relationship ManagementWhy do Supplier relationships fail?How Relationships WorkUnder-investin RelationshipRestrictInformationFlowDoom LoopVirtuous CycleImproveMutualUnderstandingCreateVal uableOptionsImproveTrust andCommunicationShareInformationAboutInt erestsConfirm Suspicions / PerceptionsCreate LowValue Deal6 A good Relationship needs to be built, it cannot be bought Do what is good for the Relationship , and us, regardless of whether or not they reciprocate A strong Relationship is essential to sustainable bottom line results Communication is robust and efficient Tensions are surfaced early and easily We trust each other We understand and respect each other.

2 Even when we don t agree We rely on persuasion rather than coercionTwo Views of Relationship Management A good Relationship can/must be bought Deal with them the way they deal with us The bottom line sometimes requires sacrificing the quality of the Relationship You do what I want I keep you happy We have little or no conflictMore robust measuresBetter assumptionsCommon assumptionsCommon measures7 What do you need for a strong Supplier Relationship ?The Required Foundation8 The Required Foundation Fully executed, comprehensive Supplier agreement Aligned objectives Clearly defined statement of work Measurable service expectations9 The Required Foundation Effective Supplier Management Program Clearly defined measures Documented method of measurement Weighted individual measures Minimum/threshold gates Link to compensation10 The Required Foundation Skilled Relationship Managers Managers of relationships ( Supplier /client), not functions Subject matter experts, credible Masters of communication Enablers (solution driven, not fault driven) Integral, honest and appropriately biased11 Supplier SegmentationDoes one approach to Supplier Relationship Management work for all?

3 12 Segmentation Benefits Ensures optimal allocation of limited Management time and resources Helps determine what kind of Relationship to develop for different types of suppliers Ensures internal alignment re: Supplier Management roles, responsibilities, actions13 Segmentation Benefits Guides sourcing and negotiation strategy, Relationship Management structure and Supplier activity Helps clarify and manage Supplier expectations14 Segmentation Criteria Degree of interdependence (customer/ Supplier ) Level of spend Strategic importance of Supplier Number of BUs served by a Supplier Complexity and frequency of changes in Supplier requirements Type and number of products or services a Supplier provides Cost/difficulty of switching suppliersSegmentation ModelCollaborativeRelationshipStrategicS upplierAllianceCustomRelationshipCommodi tyArrangementLOWV alue at stake/strategic importanceCost/difficulty of switching suppliersHIGHHIGHS egmentation Implementation Relationship Category Implication Commodity Custom Collaborative Strategic Driver Price Competitive advantage Maximize value.

4 Lowest total cost Critical need Negotiation Strategy Maximize price leverage Sole source Leverage number of suppliers and business volume awarded Win/Win maximize joint gain and good precedent Presumed Duration Short to medium term Dependent on market environment Medium to long term Long term Governance Commodity group portfolio manager Dedicated Relationship manager Dedicated Relationship manager; internal customer coordination committee Joint customer- Supplier oversight board; dedicated Relationship manager Communication Limited to transactional exchange of info Regular, though limited in scope Robust and frequent, with some executive contact Robust and multi-level, with senior executive contact Quality Management Managed on exception basis; leverage penalties Managed on exception basis; leverage incentives Joint effort; customer investment driven by switching costs Joint effort, equal investment Planning Annual; narrow in scope Regular, but limited in scope Joint and frequent; time horizon varies by context Integrated, frequent, and long term focused Supplier s Viability N/A Safeguard when benefits outweigh costs Understand and monitor Safeguard Investment in Relationship Low Medium to low Medium High 17 Managing Supplier Relationships We outsourced it.

5 It s the Supplier s problem, not mine! This is about getting them to meet our needs When things go wrong, assign blame and apply contractual penalties Customer decides, vendor executes Customer defines metrics; Supplier is evaluated Negotiations are often adversarial; produce arbitrary outcomes Each party is often surprised and learns of decisions after they re made This is about meeting both our needs in a sustainable way When things go wrong, diagnose joint contributions and work to avoid repetition Wise decisions need joint input At least some metrics are jointly developed and shared, or symmetrical Negotiations focus on problem-solving; produce good precedents Surprises are rare; planning is highly integrated; communication is frequent and robustAttributes of astrategic Supplier partnershipAttributes of a typicalcustomer-vendor relationshipSupplier Relationship Management = Paradigm ShiftStronger Relationships Generate More Value * Almost 80% of respondents said that strong working relationships with suppliers deliver at least 25% greater valuethan poor relationships with suppliers.

6 Procurement professionals report that they would increase their company s bottom line by $43 million annuallyif they were to implement strategic Relationship Management practices with key suppliers* Source: Negotiating and Managing Key Supplier Relationships: A Cross-Industry Study of 20 Best Practices. Vantage Partners, Value GeneratedThrough Strong Supplier Relationships33%9%17%20%21%0-25% more value26-50% more value51-75% more value76-100% more value>100% more value Reduced compliance monitoring costs Reduced transaction costs of working together Greater value through improved leveraging of assets and capabilities Fewer damaging or costly surprises Greater value through low-cost, high value trade-offs Reduced switching costs Problems spotted early (before significant costs are incurred) and resolved effectively High degree of trust Robust and efficient communication Collaborative and creative problem solving High degree of mutual understanding Conflicts and tensions are surfaced early Differences in goals, culture, and competencies are respected Disagreements are resolved through mutual persuasion, not coercion Emphasis on diagnosing joint contribution not assigning blameGood Relationship Characteristics = ValueDimensions of Relationship valueCharacteristics of a good relationship21 Ongoing Management Sustains Value Demand Management Market Management (benchmarking)

7 Supplier management22 Benefits of Supplier Relationship Management Minimize Supplier -related risks Maximize opportunities to reduce/avoid costs Capitalize on potential synergies revealed through greater integration between Supplier and client Maximize client satisfaction Maximize client investment in Supplier relationship23 Benefits of Supplier Relationship ManagementAchievement of desired results( best product and/or best service, delivered cost effectively)Ultimately- client satisfaction24 Effective Supplier Relationship ManagementTHANK YOU!Joseph C. BlackDirector, Corporate Administrative ServicesExpense Management Solutions, Turnpike Road, Suite 330 Southborough, MA